Malta: Recent developments regarding fringe benefits

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Mark Galea
Salomone

Donald
Vella

In August 2017, the Fringe Benefits (Amendment) Rules were
passed, by virtue of which important amendments were made to
the fringe benefit rules in Malta to more closely reflect the
current reality of cross-border employment.

In terms of Maltese income tax legislation, fringe benefits
are benefits provided or deemed to be provided by reason of
employment or office, regardless of whether they are received
in cash or in kind and whether they are received in terms of
the normal conditions of a contract of service or by way of a
special or ex-gratia allowance.

The most pertinent introduction to the fringe benefit rules
relates to tax jurisdiction. Where a fringe benefit is deemed
to arise, the income represented by the value of that benefit
is deemed to arise in the country where the services are wholly
or principally performed. Therefore, if an employee is granted
a benefit, such as free accommodation in Malta, but the
activities relating to such employment are carried on outside
of Malta, such income is to be treated as foreign source income
for Maltese income tax purposes. Moreover, with respect to
benefits arising from directorships, the amendment rules also
clarify that such benefits are deemed to arise in the country
where the company is managed and controlled.

The amendment rules also amend the calculation of the
taxable value of certain benefits, such as those relating to
the use of cars and the use of property. With respect to the
taxable benefit of the private use of a car with a value not
exceeding €16,310 ($20,000), the percentage of private use
of the car has been reduced from 20% to 0%, provided that the
vehicle is used wholly or mainly for point-to-point services by
an employee who is a salesman or a support person in the
performance of his duties. The taxable benefit of the use of
immovable property, on the other hand, is to be determined by
calculating 5% of the higher of the market value and the cost
of the property. Moreover, where a shareholder resides in a
property owned by a company, the amendment rules provide that
such provision of accommodation should not constitute a fringe
benefit, provided that a set of conditions are satisfied.

Share award schemes are deemed to be provided on each date
that shares are issued or transferred to the beneficiary, and
the value of such a benefit is to be calculated as the excess
of the price which the shares would fetch if sold on the open
market on the date when the benefit is provided over the price
paid/payable by the beneficiary for those shares. The amendment
rules now state that the benefit is to constitute separate
chargeable income and be subject to tax at 15%.

The above amendments sit alongside a number of other
amendments which have each been made with the intention of
clarifying, supplementing and updating the fringe benefit
rules.